Oil’s third year over $100 looms on supply risk

Brent crude is poised to trade above $100 a barrel for a third consecutive year in 2013 as tension in the Middle East threatens to disrupt supply and global demand is buoyed by Chinese imports.

Oil will average $110 next year, according to the median of 30 forecasts compiled by Bloomberg, compared with about $111.70 so far in 2012, on course for the highest-ever annual price. Brent is more likely to overshoot the 2013 median than miss it as Iran spars with the west over its nuclear program and the conflict in Syria deepens, Morgan Stanley and UBS AG said.

“Risks are skewed to the upside, related to still-high risks of escalation or confrontation over Iran and deterioration in Syria,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York, who predicts Brent will average $110 next year. “The biggest possible surprise for markets could be stronger-than-expected oil-demand growth.”

Rising prices may pose a barrier to a recovery in the global economy amid Europe’s sovereign debt crisis, U.S. budget disputes and signs of slowing growth in Asia. Record revenue for oil producers helped ensure supply stability this year, encouraging Saudi Arabia to pump at its highest rate in three decades, while financing shale projects in the U.S. that fostered the nation’s biggest production increase in 50 years.

Iran Sanctions

Iran’s oil exports have collapsed 50 percent from year-ago levels because of tightened restrictions on sales imposed by the U.S. and Europe this summer, the International Energy Agency said. Daily exports will probably slide to about 1 million barrels early next year, compared with 2.5 million at the start of this year, the Paris-based adviser to consuming nations said in a Dec. 12 monthly report. Barclays Plc predicts that 2013 will be the year when western governments decide whether to accommodate or confront the Islamic republic.

The U.S. will probably seek to bring Iran back to international talks in the first quarter of 2013, renewing focus on the issue and adding to the so-called oil-price risk premium, Michael Wittner, the New York-based head of commodities research at Societe Generale SA, said in a Dec. 21 note.

Prices have also gained on signs that the uprising against Syrian leader Bashar Al-Assad is heightening discord between Iran, a predominantly Shia Muslim nation that has given military support to Assad, and Saudi Arabia, a Sunni-majority kingdom assisting opposition forces. Refugees are fleeing Syria to neighboring states including Iraq, the fastest-growing oil producer this year among the 12 members of the Organization of Petroleum Exporting Countries.